The SEC: All Together Now?

On most matters, the bipartisan commission speaks with one voice.Roy Harris, CFO.com | USOctober 6, 2010

The five-member Securities and Exchange Commission consists of three Democratic and two Republican appointees, and it operates in a highly politicized environment. During fractious times like these, with bipartisanship a rare commodity on Capitol Hill, pressures mount on the agency's ability to perform its goals: "to protect investors; maintain fair, orderly and efficient markets, and facilitate capital formation."

So it may come as a surprise to learn what percentage of the commission's votes is unanimous. It's not 25%, or even 50%, as an extreme optimist might hope for — but 93%.

To be exact, 93.2% of the commission's votes are 5-0, according to a recent SEC tally provided to CFO. Of 748 votes taken in closed and open meetings in the first 18 months of Mary Schapiro's term as chairman, 697 were unanimous.

As for the 34 open-meeting votes — where party divisions about government's role in business issues are fully exposed — 28, or 82.3%, resulted in a 5-0 vote of the commissioners.

So what's going on? Nothing really new, say longtime SEC watchers.

"Five-oh votes haven't been unusual in the commission over the years, although there have been a lot of highly publicized 3-2 votes," says Scott Taub, managing director of consultancy Financial Reporting Advisors and the SEC's deputy chief accountant and acting chief accountant from 2002 through 2007. Noting the sheer volume of questions raised, he adds, "I imagine that many of those votes are things like, should we accept the delisting of this company that hasn't filed in the past three years."

Columbia University law professor Harvey Goldschmid, though, observes that the tendency of bipartisan members to agree so often "is part of the genius of administrative agencies." Goldschmid, who served as a Democratic SEC commissioner from 2002 to 2005, suggests that party affiliation is a secondary factor. "Commissioners are picked on the basis of merit and background," he says, and cases require "good judgment, rather than voting along pure party lines."

Indeed, all five current members have meritorious backgrounds, heavy on academic and regulatory experience. Republican Troy Paredes, a Yale University law graduate, came to the commission as a law-school professor at Washington University, St. Louis, with a courtesy appointment also at the business school there. Fellow Republican Kathleen Casey was a longtime congressional staffer, most recently staff director and counsel of the Senate Banking, Housing, and Urban Affairs Committee.

Among Democrats, Harvard Law School graduate Elisse Walter was senior executive vice president, regulatory policy and programs, for the Financial Industry Regulatory Authority (FINRA), while Luis Aguilar was a law partner specializing in securities law and corporate finance for various firms. Chairman Schapiro served as an SEC commissioner under three Presidents and as CEO of FINRA, and is a veteran of several high-level National Association of Securities Dealers posts.

Whatever the reasons for their frequent unanimity, it often benefits investors, suggests Nell Minow, a co-founder of The Corporate Library. Asked about the recent 5-0 vote increasing the transparency of intraperiod short-term borrowings, Minow called it "a positive sign [that] should give people confidence that some part of the system is working on their behalf in the wake of the meltdown."

In answering an audience question after a September 7 speech at the Economic Club of New York, Schapiro herself noted a high percentage of "unified" votes, adding that both the hashing out of 5-0 positions and the occasional splits are positive parts of the SEC's process. And John Nester, the SEC's spokesman since 1997, adds that the commission's "record of agreement over the years reflects the thoroughness of the staff's analyses and collegiality among commissioners of varying views" — a quality cited by others at the SEC over the years.

The disagreements and splits that do occur get plenty of attention, even if they are relatively rare. Earlier this year, for example, when the two Republicans voted against charging Goldman Sachs with fraud involving the Abacus subprime-mortgage derivative product, it prompted at least one online article headlined "SEC Commissioners Often Vote 3-2 Along Party Lines." "The place votes vary most is in enforcement," notes Goldschmid, "but even then, in the significant cases, unanimous votes have not been uncommon."

More-recent splits have occurred for measures increasing proxy access and approving interpretive releases to change New York Stock Exchange broker-voting rules and to cover climate-change reporting. And even when there appears to be agreement, nuances surface. In approving the new requirements for reporting on intraperiod short-term borrowings, Paredes said he would study "the extent to which non-financial companies should be subject" to expanded requirements. Casey, while calling the new disclosures "a good starting point," planned to pay attention to "the costs and burdens of providing them."

Still, in a time when the two political parties aren't working well together in many Washington venues, SEC unanimity is "sort of a good news story," allows Goldschmid. "But then there ought to be some good news stories."